Protectionism: it sounds better than it is

By
James Barnes and Kenneth Couch /
December 10, 1985

WE are in real danger of losing an industry vital to so many aspects of American life,'' said Sen. Mack Mattingly (R) of Georgia in a contemporary comment. That's one side of the argument. The opposite view was expressed 161 years ago by Daniel Webster, then a congressman from Massachusetts: ``There is no foundation which attributes to certain employments the peculiar appellation of American industry.''

Although it spans more than a century and a half, this exchange cuts to the core of the old American debate over trade legislation -- whether it is necessary to maintain certain domestic industries and their jobs.

The issue now focuses most directly on the American apparel and textile industry, but the arguments apply to other kinds of protectionist legislation. Senator Mattingly and many of his colleagues seek to protect domestic textile manufacturing, thereby preserving jobs at home. They claim that free trade is an anachronism in the international economy of the modern world.

A bill that would reduce textile imports, primarily from Asia, into the United States has been passed by both houses of Congress. At this writing it awaits an anticipated veto by President Reagan -- which, if it comes, will require Congress to decide whether to try to override it.

During Senate debate the image was raised more than once of hundreds of thousands of displaced American workers denied jobs as mills are forced to shut down because of competition from the ``slave wages'' of third-world textile producers. But we should consider what actually happens to the average laid-off American worker before taking positions on protectionist measures.

The Bureau of Labor Statistics compiled information from 1979 to 1983 on workers displaced by plant closings and corporate failures, commonly linked to import competition. The data indicate that most displaced workers found new jobs, although they were likely to be jobless longer than was the general unemployed population. Less than 14 percent, primarily older workers, permanently left the labor force. Moreover, textile and apparel workers who found new jobs did not suffer drastic salary cuts; in the lo ng run, many will be better off.

Service industries have contributed the largest employment gains to the economy during the past five years; presumably many displaced textile and apparel workers found jobs in that sector. Typically, a person employed in textile and/or apparel manufacturing in the United States earns $6.12 an hour. The nongovernmental service sector's average hourly wage is higher -- $7.82.

Unfortunately, increased employment in services has become equated with fast-food hamburger-slappers. But while the economy added 900,000 low-wage jobs in eating and drinking places from 1980 to 1985, it also created 4,900,000 new jobs in higher-paid service industries: business, legal, architecture, health, wholesale, and retail trades.

Aside from better earning opportunities, textile or apparel workers who move into most services will be less vulnerable to foreign competition and have better prospects for job security, since the service sector rarely suffers layoffs, even in a recession.

There was much discussion in the Senate about a need to ``maintain the standard of living'' of textile worker families and how ``we cannot afford to write off'' that industry. But what are the costs of preserving it, and upon whom do they fall hardest? Webster knew. ``I see very little relief,'' he said, ``to those who find the prices of commodities which they need, raised.''

When imports are restricted prices can rise in three ways: Remaining foreign products cost more as exporters raise prices to offset market loss, consumers have to pay for more expensive domestic goods, and the prices of US-made goods rise because of reduced import competition.

This bill principally cuts imports of low-priced clothing. Affluent shoppers will find their favorite designer labels readily available; but working-class families could find children's apparel in less abundance and more expensive. Protectionism imposes its costs regressively on society.

The Summer Quarterly Review of the Federal Reserve Bank of New York estimates that Americans last year paid between $8.5 billion and $12 billion more for clothing than they would have if there had been no quotas or tariffs on foreign products. For individuals earning less than $10,000, this cost of protection is roughly equal to a 13 percent hike in their federal income taxes, about a 6 percent increase for those earning $25,000, and a rise of only 3 percent in the $50,000 range.

As the President decides whether to sign or veto the textile bill, and Congress then likely considers overriding a veto and, in the coming months, ponders more protectionist measures, we hope they reflect on Mr. Webster's free-trade ideas. ``The question is,'' he said, ``shall we buy this article of these [foreign] manufacturers, and suffer our own labor to earn its greater reward, or shall we employ our own labor in a similar manufacture, and make up to it by a tax on consumers . . . ?''

James Barnes and Kenneth Couch are research associates at the American Enterprise Institute.